Deloitte Consumer Spending Index Falls on Sharp Declines in the Housing Market; Consumer Spending to Face Economic Headwinds in 2012

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Feb 09, 2012, 08:00 ET

NEW YORK, Feb. 9, 2012 /PRNewswire/ -- The Deloitte Consumer Spending Index (Index) continued downward in January and consumer spending will face additional economic headwinds in 2012, according to Deloitte. The Index tracks consumer cash flow as an indicator of future consumer spending.

"A sharp fall in real home prices primarily contributed to the decline in the Index," explained Carl Steidtmann, Deloitte's chief economist and author of the monthly Index. "While initial unemployment claims ticked lower, real wages and the tax burden showed no improvement leaving little to offset the housing market's negative effect on the Index."

Deloitte's analysis of U.S. Commerce Department data indicates that the weakness across economic fundamentals over the past several months may continue and further crimp consumer spending in 2012:

Real incomes declined on a year-over-year basis for the fifth month in a row. While a social security tax cut boosted incomes in January 2011, incomes are set to continue falling without an additional cut this year.
New and existing home sales remain weak, and prices continue to decelerate. Current government proposals to improve the situation, even if approved, will take time to develop, implement and affect the housing market.
Tax increases at the state and local level are raising the overall level of taxation and reducing consumer purchasing power.

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 1.73 from a revised reading of 1.90 the previous month.

"The likelihood that consumer spending power will be further stretched this year puts a brighter spotlight on one area of retail -- pricing," said Alison Paul, vice chairman and Deloitte's retail & distribution sector leader. "While consumers may be price conscious, retailers need to pursue strategies that drive profitability, not just traffic and sales volume, while also taking into account broader economic events that affect their entire operation. A cross-functional approach that includes technology, store operations, inventory management, merchandising and marketing is necessary to develop an effective pricing strategy for a retailer's multiple sales channels."

Highlights of the Index include:

Tax Burden: The tax burden rose sharply to 11.5 percent as state and local governments increase taxes to cover budgetary shortfalls. While rising taxes are typically a sign of an improving economy, it is likely more of a drag on spending than a sign of an improving economy in this scenario.

Initial Unemployment Claims:Claims moved lower in the most recent month to 376,200 and are now well below the 400,000 mark on a weekly basis.

Real Wages: While energy prices remain stable, real wages continue to fall, declining 1.6 percent from a year ago.

Real Home Prices: Prices fell more than 15 percent from a year ago, more than offsetting the small improvements from unemployment claims and taxes. The last time the housing market experienced a more substantial drop was October 2008.

About Deloitte's Retail & Distribution Practice

Deloitte is a leading presence in the retail and distribution industry, providing audit, consulting, enterprise risk management, financial advisory and tax services to 80 percent of the Fortune 500 retailers. With more than 1,400 professionals, Deloitte's retail & distribution practice delivers insights and solutions assisting retailers across all major subsectors including apparel, grocery, food and drug, wholesale and distribution and online. For more information about Deloitte's Retail & Distribution sector, please visit www.deloitte.com/us/retail-distribution.

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SOURCE Deloitte